International financial reporting standard
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International Accounting Standard 10: Events after the Reporting Period (IAS 10) is an international financial reporting standard adopted by the International Accounting Standards Board (IASB). [1] It contains requirements for when events occurring between the end of the reporting period and the date on which the financial statements are authorized for issue should be reflected in the financial statements. [2] The standard distinguishes between adjusting events, which provide evidence of conditions existing at the end of the reporting period, and non-adjusting events, which relate to conditions arising after the period. [3]
IAS 10 was originally issued in May 1999 and was subsequently retitled in 2007 to align with the revised IAS 1. [4] The period between the balance sheet date and authorization is crucial as it is the timeframe during which preparers finalize the financial data. [5]
Adjusting events require an entity to update the amounts recognized in its financial statements. [6] Common examples include the settlement of a court case that confirms a present obligation existed at year-end or the bankruptcy of a major customer that confirms a loss on a trade receivable. [7]
Non-adjusting events do not result in changes to the financial statement amounts but must be disclosed if they are material. [8] A decline in the market value of investments after the reporting period is a typical non-adjusting event, as it reflects circumstances that arose subsequently. [9] Materiality is assessed based on whether the information could influence the economic decisions of users. [10]
If an entity declares dividends after the reporting period, it shall not recognize those dividends as a liability at the end of the reporting period. [11] Such dividends are disclosed in the notes in accordance with IAS 1. [12]
An entity shall not prepare its financial statements on a going concern basis if management determines after the reporting period that it intends to liquidate the entity or cease trading. [13] A deterioration in operating results and financial position after the reporting period may indicate a need to consider whether the going concern assumption is still appropriate. [14]
The following examples illustrate the accounting treatment for events occurring after the reporting period.
Scenario: A company has a receivable of $10,000 at its year-end (Dec 31). In February, before the accounts are authorized, the customer goes bankrupt.
| Event | Debit | Credit | Rationale |
|---|---|---|---|
| Recognition of loss | Bad Debt Expense (P&L) | Allowance for Credit Losses | The bankruptcy provides evidence of a condition (insolvency) that existed at year-end. [15] |
Scenario: In January, a major production plant is destroyed by fire. The carrying amount of the plant was $500,000.
| Action | Journal Entry | Rationale |
|---|---|---|
| Adjustment of Accounts | None | No entry is made in the year-end financial statements as the fire is a new condition. [16] |
| Disclosure | Note Disclosure | The nature and financial effect must be disclosed in the notes if material. [17] |
IAS 10 contains requirements for when an entity should adjust its financial statements for events after the reporting period and the disclosures that an entity should give about the date when the financial statements were authorised for issue and about events after the reporting period. [18]
| Paragraph | Category | Disclosure Requirement | Description / Examples |
|---|---|---|---|
| IAS 10.17 | Authorisation Data | Date of Authorisation | Disclosure of the date when the financial statements were authorised for issue and who gave that authorisation. |
| IAS 10.18 | Power to Amend | If the entity's owners or others have the power to amend the financial statements after issue, the entity must disclose that fact. | |
| IAS 10.19 | Updating Assets | Information Received | If information is received after the reporting period about conditions that existed at the end of the period, disclosures relating to those conditions must be updated. |
| IAS 10.21(a) | Non-adjusting Events | Nature of the Event | For material categories of non-adjusting events, the entity must disclose the nature of the event (e.g., a major business combination or destruction of a plant by fire). |
| IAS 10.21(b) | Financial Effect | An estimate of the financial effect of the non-adjusting event, or a statement that such an estimate cannot be made. | |
| IAS 10.22 | Specific Examples | Major Non-adjusting Events | Examples including: announcing a plan to discontinue an operation, major asset purchases, or abnormally large changes in asset prices or foreign exchange rates. |